‘No new curbs on gold imports for now’

After the removal of the restrictive 80:20 scheme, the Centre has no plans to raise import duty on gold. Tax authorities expect the removal of restrictions on gold imports to not just curb smuggling but also boost tax collections.

“The 80:20 scheme was an emergency measure to check the current account deficit (CAD). Now, when the deficit is under control, it has been scrapped,” a senior Finance Ministry official told BusinessLine.

The restriction had encouraged six trading houses to corner a major portion of gold imports, affecting supply, raising the premium and causing hardship to genuine users.

The Reserve Bank of India, in a surprise move, scrapped the scheme on Friday. Introduced last year, the scheme prescribed any entity importing gold to re-export 20 per cent of it in value-added form.

The official denied any new measure to curb gold imports, such as higher duty. Gold attracts an import duty of 10 per cent.

Since this is the peak duty under international trade obligations and also as Parliament is in session, the Government would need to bring a legislation using its special power to further hike the duty.

The official said: “There is no such proposal under consideration, at least for the time being.”

Boosting tax collection was not the key reason for scrapping the restrictive scheme, the official said, adding: “We will need to see how this move will benefit tax collection.”

Meanwhile, another Revenue Department official admitted that legal gold imports were set to rise which, in turn, will benefit duty collection.

Import duty is part of indirect taxes, which registered a growth of just 5.6 per cent during April-October against a target of over 25 per cent.

Gold imports have surged in recent months, mainly due to the ongoing wedding season. But softening of crude prices has offset this surge in the country’s overall import bill.

This, along with lower growth of exports, shrunk the trade deficit to $83.75 billion in April-October this year from $87.32 billion last year. The CAD for the full year is expected to come down to 1.4 per cent from 1.7 per cent in 2013-14.

Sonal Varma of Nomura said that as a result of the withdrawal of this restriction, “gold imports will rise by $8 billion annually, on our estimate, but this will easily be offset by the savings due to lower oil price (every $10 fall in oil prices lowers the oil import bill by around $9 billion).

“This is a move in the right direction, as it removes distortions and indicates that policymakers are growing confident on the external sector’s outlook.”

The World Gold Council estimates gold demand in India at around 850-900 tonnes, marginally lower than last year.